SPEECH BY BARBARA CREECY, MEC OF FINANCE AT THE TABLING OF THE 2018/19 BUDGET VOTE OF THE GAUTENG PROVINCIAL TREASURY, GAUTENG PROVINCIAL LEGISLATURE, 26 JUNE 2018.
Colleagues in the Executive Council;
Honourable Members of this House;
The HOD of the Gauteng Provincial Treasury;
Comrades and Friends;
Citizens of Gauteng who are listening to us on radio right now;
Honourable Members, 63 years ago today, the Congress of the People sitting in Kliptown, concluded one of the most remarkable democratic campaigns of the twentieth century. The Freedom Charter, a document, perhaps unique in world history, was not drawn up by a committee of eminent persons, but emerged instead, from a year-long campaign of hearing people’s grievances and aspirations.
What emerged, according to Professor Raymond Suttner was a document that is both similar to other human rights documents in its universality and at the same time specific to the problems peculiar to the life of South Africa’s oppressed people.
Professor Suttner argues, that if the Freedom Charter is to live, in this, its 63rd anniversary, it must be interpreted afresh today and every year.
There is no doubt, that at this point in time, two priorities remain uppermost in the minds of our citizens. These are; the radical social and economic transformation of our society, and improved public accountability, transparency and capacity of government institutions.
For Gauteng’s Treasury, improvements in public finance management and economic transformation are in no way incompatible and we believe we have shown in practice that it is possible to do both successfully.
In line with Premier Makhura’s ten pillar programme of transformation, modernisation, and re-industrialisation, our Provincial Budget policy remains anchored around four key principles:
• Improving own revenue collection so we can maintain and enhance provincial spending first and foremost on education, health care, and social services;
• Sustaining improvements in public finance management to further cut waste, eliminate corruption, and strengthen public accountability;
• Using public procurement to transform the economic landscape and build a more inclusive and sustainable growth path; and,
• Growing our infrastructure spend through on and off budget initiatives.
Madam Speaker, I am pleased to announce that our provincial departments spent R104.4 billion in the 2017/18 financial year, which represents 98.6%% of the total budget.
An amount of R11.2 billion or 97% of the total infrastructure budget and R19.8 billion or 98% of the Conditional Grants budget was spent in the same period.
In line with our budget principles, we spent nearly eighty percent of our budget on health, education, and social services. We have also maintained spending on personnel below the sixty percent mark at 57 percent of overall expenditure.
While we understand the ever- increasing service demands facing our provincial health and education systems, we want to urge both these departments to maintain discipline in personnel spending to protect budgets for medicines, medical equipment and learner support materials.
We are happy to announce today that the Department of Health has paid all accrued invoices for service providers under R10 million and is in the process of negotiating payment plans with all other suppliers
Once again, Provincial Treasury surpassed its own revenue raising targets. Our unaudited figures indicate that in the 2017/18 financial year we raised R6.1 billion against our initial target of R5.4 billion.
Revenue collection from motor vehicle licence fees, interest on short term investments, and patient fees exceeded targets; while casino licenses narrowly under-collected.
Building public confidence through promoting clean government and transparency
Madam Speaker, when we came into office in 2014, we committed ourselves to addressing grave public concern that government resources are spent delivering services to citizens and not wasted through fraud and corruption.
Corruption is not a victimless crime; it enriches a few and robs the poor of much needed services, facilities, and development.
As a measure to decisively restore public confidence in government procurement, and systematically eliminate irregular expenditure, we implemented one of the most exciting and innovative projects of this term – the Open Tender system.
Since then, more than 75 projects with a combined value of R15 billion have been publicly adjudicated through the Open Tender system to widespread public support and acclaim.
We have also been able to detect non-compliance matters in 26 tenders before award. In cancelling these procurement processes, we have saved provincial government a total of R1.2 billion in irregular expenditure.
In this financial year, all tenders that are valued from R2 million will be adjudicated through the Open Tender system.
As part of our efforts to ensure that the Open Tender system becomes the institutionalised manner of procuring goods and services in Gauteng, we have already published the Gauteng Finance Supplementary Amendment Bill 2018 for public comment. Our aim is to ensure that this Bill becomes an Act of Parliament by end of this term of office.
The Open Tender system has now been implemented in all provincial departments, six public entities and two local municipalities. A total of R25 million is allocated in this financial year to appoint probity audit teams.
Honourable Members, may I take this opportunity to welcome the decision by Premier Makhura to refer all allegations of financial irregularities and financial misconduct raised in previous forensic reports, conducted by the Provincial Treasury, but never acted on, to the Special Investigation Unit.
Until those responsible for financial irregularities face consequences for their actions we will never rid the public service of this scourge!
A total of R21 million is set aside this financial year for co-sourcing support for Gauteng Audit Services and Forensic Services units to supplement internal capacity gaps for services requested by provincial departments.
Leveraging procurement to transform Gauteng’s economy
Honourable Members, the Gauteng Provincial Government remains absolutely committed to economic transformation. Over the past four years we have demonstrated this by consistently using our massive procurement spend to drive meaningful transformation, empowerment, job creation, and economic inclusion in the mainstream economy.
Over the past three years, Gauteng has spent 91% of our procurement budget of R 46 billion on procuring goods and services from businesses owned by historically disadvantaged individuals, including more than 10 000 black-owned enterprises.
In the period 2015/16 to 2017/18, provincial government also spent R45,9 billion on infrastructure development and maintenance. Over ninety percent of this has resulted in procurement from empowered companies in the construction and professional services sectors.
What has proved more difficult is effectively meeting the National Treasury target of ensuring our major contractors sub contract thirty percent to local companies. Non -compliance by main contractors has seen the rise of so-called business forums that have halted infrastructure projects across the province.
Working with Tshepo One Million, Provincial Treasury is developing a process to mobilise local contractors, introduce them to main contractors and conclude a local working partnership that meets the criteria for 30% subcontracting. This will ensure that verified local artisans benefit from the infrastructure spend. We are in the final phase of project selection using this approach. As part of this process, a fair and transparent process was undertaken and a technical platform developed that will be used in the future rollout of infrastructure projects in the province.
We encourage departments working on the built environment to make use of our experience as well the substantial database we now have of local artisans and entrepreneurs.
This will help the provincial government increase its spend on registered township suppliers to meet the target of 40% by the end of this financial year.
To further support the formalisation of township enterprises, and facilitate market access, the provincial government has since 2014 registered more than 10 000 township businesses on the central supplier data base and spent R20.5 billion procuring goods and services from these enterprises.
We have also procured from 500 cooperatives, mainly run by women, benefitting more than 2 800 members. We are currently linking these cooperatives to opportunities in the mainstream economy to ensure their sustainability.
Over the past year, our approach to supplier development has become more systemised and streamlined. Together with Tshepo One Million, we have developed an enterprise development pipeline that conceptualises the journey informal start-ups can take through formalisation, supplier development, and market access to become fully sustainable enterprises in the private sector.
Central to this pipeline is the creation of a clearing house that will help us verify a supplier’s location, capacity, and expertise. This is an important step that assists us with three important tasks. Firstly, offering more appropriate supplier support and development; secondly ensuring we can offer our sister departments local contractors in specified geographic areas, and finally to promote greater market access for suppliers registered on the GPG data base with the private sector.
Through our partnership with the South African Supplier Diversity Council (SASDC), we have a target to physically verify and train 2 490 township suppliers in order to improve their capacity to manage their businesses.
To date, we have already physically verified a total of 1 494 suppliers and 934 of these suppliers have been entered into a development programme. 140 of these township businesses have met the certification due-diligence criteria of SASDC and have been loaded on the SASDC certified supplier database that is used by the organisation’s corporate members to source suppliers.
Honourable members; I would like to take the opportunity today to acknowledge Shanduka Black Umbrellas, Arcelor Mittal, and the Vaal University of Technology who are working on supplier development in the Western and Southern Corridors respectively.
I would also like to acknowledge the work of FNB, which has already involved 307 suppliers through their start-up and scale up programme.
Hollard has been provided with a database of 30 suppliers to pilot a supplier development programme so that township panel beaters can service and repair cars owned by Hollard policy holders. In the long term, we hope this will result in an increase in the number of certified township-based panel beaters servicing the wider insurance industry and government garage.
30 Day Payment of Suppliers – Progress and Interventions
Honourable Members, we understand that payment of invoices on time is not only important for compliance with Public Finance Management Act, but also contributes to a healthy cash flow, particularly for small companies so that they can thrive and create much needed jobs.
In the 2017/18 financial year, five departments namely Office of the Premier, Agriculture and Rural Development, Social Development, Provincial Treasury, and COGTA paid 100% of their supplier invoices within 30 days. With the exception of Health, Education and Infrastructure Development all other departments paid 90 percent of invoices in 30 days.
Amongst those struggling to achieve the 30-day target, Education has improved the most, and now pays 85% of its suppliers on time.
Six departments now pay 90 percent of invoices within 15 days and a further three departments pay 80% or more of their suppliers within 15 days.
In this financial year, we have put aside R5.5 million specifically to modernise financial business systems in the province including e-invoicing, project portfolio management, and inventory management.
Hands-on Support to Municipalities
Honourable Members, the department continues to strengthen its support to district and local municipalities to ensure they improve management of their finances and provide quality services to the public.
In this regard, it gives me pleasure to announce to this House that all municipalities in Gauteng received unqualified audit opinions on their financial statements in the 2016/17 financial year. In this regard, the Midvaal Local Municipality maintained its clean audit status and the Rand West Municipality achieved an unqualified audit opinion as a consolidated municipality. Congratulations to all our municipalities.
Provincial Treasury remains concerned about high levels of irregular expenditure by all Gauteng Municipalities. Accordingly, we have enhanced the level of training and support that we provide to local government. In this financial year, we are rolling out various support initiatives which include amongst other things, how to improve the level of compliance with the Municipal Finance Management Act and its related regulations as well as modules on accounting, internal audit standards, asset management, and budgeting. A total of R3.5 million has been allocated for both the Municipal Financial Management Hands On Support Programme.
As we said at the beginning of this term of government, it is not acceptable that the provincial sphere of government can owe another government entity without a plan to resolve the matter. In line with this, we have effectively utilised the Debt Management Committee to track payments and resolve disputes over government debts to municipalities for rates and services. To this end, the provincial government has paid a total of R4.7 billion to municipalities for rates and services in the period 2015 to 2018. This has drastically reduced provincial government debt to municipalities to less than 2% of all municipal debts owed for rates and services.
As I announced during the Budget Speech in March, we have set aside R901 million in 2018/19, R954 million in 2019/20 and R1 billion in 2020/21 towards the payment of rates and services to municipalities. We have also allocated R528 million in this financial year to pay municipal bills for no-fee public schools. This demonstrates our full commitment to ensuring that the provincial government pays for services rendered to us by municipalities.
As part of our goal to ensure public funds are used to provide services to citizens, we have supported municipalities to spend conditional grants. Over the Medium-Term Revenue and Expenditure Framework, district and local municipalities spent over R5 billion on improving public libraries clinics, emergency services, prevention of HIV/Aids, and early childhood development centres.
Honourable Members, Provincial Treasury remains concerned about the financial sustainability of our local and district municipalities. We are of the view that the District funding model and delegation of powers and functions remains inadequate to facilitate integrated planning and infrastructure provision in the Southern and Western Corridors. We are also concerned that high levels of unemployment in these same corridors mean that revenue generation for local municipalities is under severe pressure.
Provincial Treasury has been instrumental in working closely with Cooperative Governance and Traditional Affairs in the province to facilitate repayment negotiations with Eskom and Rand Water for these same cash strapped municipalities. Meeting the repayment plans to both Eskom and Rand Water will be an ongoing financial management matter this financial year.
We have asked the Minister of Finance to place the issue of municipal financial sustainability on the agenda of our Minmec Lekgotla in August this year.
Last month, I announced that the Provincial Treasury, at the request of the mayors of the West Rand District Municipality and the Merafong Local Municipality, is implementing a forensic investigation into the circumstances surrounding investments made with VBS Mutual Bank.
I remain deeply concerned about the impact of this ongoing VBS matter on the finances of these two municipalities. VBS Mutual Bank was placed under curatorship by the Minister of Finance, Honourable Nhlanhla Nene on 11 March this year, and since then these municipalities cannot access invested funds for their intended purpose, which is to deliver services to citizens. We will continue to work with National Treasury, National Department of Cooperative Governance and Traditional Affairs and the affected municipalities to find ways to mitigate the impact of the suspension of these funds on municipal financial wellness.
To strengthen our work with local government, I have reviewed the Provincial Treasury’s strategy to support municipalities. The strategy has been communicated to the Minister of Finance and aligned with the national Game Changers.
Furthermore, the Minister of Finance and Minister of Cooperative Governance and Traditional Affairs Zweli Mkhize have signed a Memorandum of Understanding that re-defines the role of Treasury and CoGTA in supporting municipalities.
In line with this MoU, Treasuries will focus on financial matters and CoGTA on service delivery and institutional matters. We welcome this development because it will assist to pool resources, avoid duplication, and create better focus on municipal support. To this end, the Provincial Treasury has already established an intergovernmental structure to take this process forward.
Alternate Financing of Infrastructure Project
Honourable Members, the provincial government has developed the Infrastructure Master Plan 2030 and is committed to working with other spheres of government and the private sector to implement the plan.
The Gauteng Infrastructure Financing Agency (GIFA) has developed financing models for socio-economic infrastructure projects that will be tested on various projects in the 2018/19 financial year.
GIFA’s project pipeline has increased to 28 projects and has a potential capital value of over R40 billion. Significant progress has been made so far to move more projects into financial close stage. As a result, construction has finally started on the Jewellery Manufacturing Precinct! The other important achievement in this regard relates to the signing of the agreement between the developer and the landowner for the development of the West Rand Logistics Hub which is a public to private partnership. Financial close is also imminent on the following projects: Lindley Waste Water Treatment Plant, Tshwane Innovation Hub: Enterprise Buildings, Rooftop Solar Panels, and Trigen Plant.
In this financial year, we plan to release our first social infrastructure project to the market: the Gauteng Schools Programme will assist the Gauteng Department of Education to replace asbestos and pre-fabricated schools with permanent “brick and mortar”, in line with the Regulations for Minimum Uniforms Norms and Standards for Public School Infrastructure.
In response to the Premier’s commitment to do more work to revitalise the economies of the West Rand and Sedibeng, GIFA is working with these municipalities on agro-processing projects and renewable energy projects such as the Merafong Bio-Energy, Merafong Solar Farm Cluster and Sedibeng/ West Rand Bio-gas projects.
GIFA has also completed a feasibility study on the Vaal Logistics Hub and the project will be packaged for market release in the 2018/19 financial year. Relevant projects aligned to the Premier’s commitment to re-industrialisation and re-vitalisation of industrial parks have been sourced by GIFA and feasibility studies and financing options will be explored on the Disassembly Knock-down Hub and Silverton Automotive Industrial Park.
Internal operations of Treasury
Honourable Members, as I move towards conclusion I want to share with you that Provincial Treasury continues to be recognised for its work in improving public financial management in our country.
In March, the Chartered Institute of Government Finance, Audit and Risk Officers gave the Department the CIGFARO Clean Administration Award, in recognition of the work we do to support district and local municipalities.
In the same month, the Provincial Treasury collected a Bronze Award at the Premier’s Service Excellence Awards, in the sub-category of Inclusive Economy for the Purchase Card (P-Card) Project.
This recognition inspires Team Treasury to double our efforts to serve the people of Gauteng better!
In conclusion, Honourable Members, allow me to thank HOD Nomfundo Tshabalala and this sterling team at Provincial Treasury for their hard work and dedication.
I also want to thank the Finance Portfolio Committee under the Leadership of Honourable Sakhiwe Khumalo for its efficient and effective oversight over all our Treasury matters in the Province.